The Government did not do enough to punish taxpayer-backed banks when they failed to hit targets for lending to small businesses, according to MPs.

The Treasury lacked effective sanctions against Royal Bank of Scotland and Lloyds when business lending fell short by £30 billion, a report from the Public Accounts Committee (PAC) revealed.

The Treasury looked at various sanctions but decided each had a downside which outweighed the benefits, the report said. The PAC said this was “not satisfactory” and the department should consider appropriate sanctions.

The PAC report was looking at the Treasury’s Asset Protection Scheme, launched in January 2009 to protect RBS and Lloyds, which are 84% and 43% taxpayer-owned following massive state bailouts in the financial crisis.

Margaret Hodge MP, chair of the PAC, said the scheme helped “restore confidence and maintain financial stability” and Treasury staff should be commended.

But she added there were areas for concern.

Ms Hodge said: “The Treasury appears to lack strong determination to use its influence to increase lending to small businesses. We expect it to find effective mechanisms to ensure the banks meet their lending commitments.”

RBS had a target of £16 billion of business lending between March 1 2009 and February 28 2010, but it received repayments of £6.2 billion, missing its target by £22 billion.

Lloyds had a target of £11 billion for the same period, but only provided £3 billion, missing its target by £8 billion.

Elsewhere, the report said RBS and Lloyds found it “difficult” to provide the Treasury with robust data on their assets.

The PAC said this was “alarming” and placed a question mark over the standards of the banks and whether or not there was effective oversight by regulators and the banks’ auditors.

The gap in the information on the banks’ assets “begs the question about the role played by the auditors of banks ahead of 2008”, the report said.

Auditors were previously criticised by the House of Lords Economic Affairs Committee, which said the failure of auditors to maintain sufficient dialogue with regulators ahead of the banking crash amounted to a “dereliction of duty”.

The PAC report also said RBS was still vulnerable if another severe economic downturn occurred.

The committee noted that since December 2010 the level of support for RBS and Lloyds had decreased from nearly £1 trillion to £512 billion.

Ms Hodge added: “There is still no way to avoid the taxpayer having to bear the cost of any such failure.

“This committee feels that it is inappropriate for banks dependent on taxpayer support to be generating excessive incomes, unnecessary bonuses or dividends at the expense of exiting public support.”

RBS chief executive Stephen Hester received a £2 million annual bonus in 2010, on top of his £1.2 million salary, while former Lloyds chief executive Eric Daniels got a £1.45 million bonus for last year.

Ms Hodge said the commission’s analysis was “highly consistent” with the findings of the Independent Commission on Banking (ICB).

The ICB found British banks should ringfence their retail businesses from investment banking operations to protect savers’ deposits.

The commission is also calling for Lloyds Banking Group to sell more of its branches to improve competition in the sector.